The cycles and swings of the commercial insurance market haveand will continue to have an impact on customers' buyingdecisions.

Being at the whim of the insurance market cycle is never ideal.Sophisticated buyers can manage their dependency on market cyclesby using both risk transfer and risk retention techniques toprovide long-term solutions for their most complex risks.

Fortunately, given the multiple risk-financing techniquesavailable in the market today, companies have choices to assumemore of that desired control — to protect their brand, mitigaterisk, assure proper use of expenses and strike a balance withintheir risk appetite.

Options on the table

Retaining risks occurs in varying degrees and many forms. Nocompany jumps into retaining all or a portion of its risks withoutcareful consideration. It requires quite a commitment, a strongrisk tolerance and a careful evaluation of options, which intoday's market include the following:

  • Paying a premium to buy insurance and transfer the risk.

  • Taking a large, loss-sensitive deductible, or self-insuredretention, in all or a portion of a risk-management program.

  • Making a move to become a qualifying self-insured in a certainline of coverage or a certain state. Lines of coverage typicallycharacterized by high frequency and low severity of claims are themost enticing for self-insurance. General Liability (GL), Workers' Compensation and Commercial Auto areoften viable options.

  • Forming a captive to fully address domestic, and perhaps evenmultinational, exposures. Given that more than 40 states havecaptive laws now, this has become a viable option for businesses ofvarying sizes, not just large corporations.

A nationwide retailer may opt to become a qualified self-insuredand retain its GL risk to keep tighter control on expenses and moreclosely manage risks to its brand. Other scenarios include a smallbusiness with a growing fleet of vehicles that assumes a highdeductible on its Commercial Auto policy or a multi-nationalcorporation that insures its liability exposure through an offshorecaptive insurance company.

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